Gold Breaks $1,370 As Emerging Markets Fears Dominate Price Action

by
David de Ferranti

Talking Points

Gold breaks $1,370 as emerging markets concerns continue

Copper falls to multi-year low while WTI struggles at $98.30

US Consumer Confidence figures may face muted response

Gold has broken above the $1,370 level while copper and crude oil flounder as elevated uncertainty surrounding emerging markets continues to erode investor confidence. The catalyst for a shift in risk-sentiment remains to be seen as the market shrugged off positive US data overnight, suggesting the potential for a lacklustre reaction to upcoming Consumer Confidence figures.

Ukraine and China Concerns Sap Sentiment

Gold is heading for its sixth straight weekly gain as ongoing turmoil in Eastern Europe has created caution amongst investors and bolstered safe-haven demand for the precious metal. With Russia seemingly unphased by the prospect of sanctions from the West, the standoff may linger, which could see gold continue to be well-supported.

Concerns of a slow-down inChinese economic growth is also likely dampening investor risk-appetite, which follows on from a disappointing set of Retail Sales and Industrial Production figures from the Asian giant yesterday. This has weighed on demand for growth-sensitive commodities with WTI heading for its first weekly loss since January, while copper trades at multi-year lows.

US Data Plays Second Fiddle

The ongoing geopolitical tensions and uncertainty surrounding China have overshadowed a better-than-anticipated US Retail Sales print overnight. This suggests there may be a muted reaction to the upcoming University of Michigan Consumer Confidence figures later in the session.

Looking to the week ahead, if emerging markets fears abate and US data continues to improve, traders may ease out of safe-haven plays like US Treasuries. The resulting rise in yields would likely help the greenback to recover some lost ground, which in turn would weigh on gold prices. However, without a shift in sentiment the yellow metal may continue to climb, while oil and copper woud likely maintain their downward trajectory.

CRUDE OIL TECHNICAL ANALYSIS – A bearish technical bias is retained for crude oil as the commodity remains in a short-term downtrend. This follows on from a Dark Cloud Cover formation on the daily that foreshadowed a bearish reversal. Additionally, the rate of change indicator has grown more negative, signaling building downside momentum. While buying support near the 50% Fib Retracement level has slowed crude’s declines and may prompt a short-term bounce, an eventual extension towards $96.70 looks possible.

Daily Chart - Created Using FXCM Marketscope 2.0

NATURAL GAS TECHNICAL ANALYSIS – The buyers sitting at the 4.450 mark have finally been cleared. With the 20 SMA signaling a downtrend a bearish bias is retained, however fading volatility (see ATR indicator) suggests follow through may be limited. Support may emerge at the 2014 low near 4.210.

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS – Gold has seemingly shrugged off a bearish reversal signal provided by the Dark Cloud Cover candlestick formation on the daily. With prices holding within their upward trend channel and above the 20 SMA the uptrend remains intact. The $1,375 may offer near-term resistance, while support rests at the breakout level at $1,351.

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS – A downtrend has emerged for silver signaled by the 20 SMA and ROC indicator. While prices remain below $21.50, shorts are preferred. A break below former resistance-turned-support at $20.50 would open up the prior range-low at $19.00.

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS–While we retain a bearish technical bias for copper, given the magnitude of the recent declines, chasing further falls may carry too much risk. As such new short entries are preferred on a corrective bounce. Fresh declines may be met by buying support at the July 2010 low near 2.865.